On November 27, President Obama signed the “Drug Quality and Security Act” (H.R. 3204) into law after the bill passed on a voice vote in the Senate. The bill’s passage marks a key inflection point on the long odyssey to develop and implement tracking and authentication procedures for the U.S. pharmaceutical market. The date that the bill was signed is particularly important, as implementation milestones are keyed off of it. While the bill goes a long way to providing an integrated direction for what have to date been piecemeal solutions propagated at the state level, affected organizations should be cautious regarding their implementation strategy, since certain aspects are still subject to clarification or to revision.

What Does DQSA Include?
In a key provision, the bill preempts individual state procedures and as a result, stops the clock on California’s much-discussed track and trace requirements. The various state initiatives will be replaced by a stepwise rollout during the next 12 years covering the entire U.S. market.

The bill excludes certain classes — such as blood-derived products, imaging products, and veterinary medicine — but otherwise applies to all players in the supply chain, from manufacturers right through to any “person authorized by law to dispense or administer prescription drugs,” and as such covers physician-administered products as well as retail and hospital pharmacies.

Initial implementation, commencing January 1, 2015 for manufacturers, will utilize a pedigree or  “Transaction Statement” approach with lot-level data being passed sequentially from manufacturer to 3PL’s, repackagers, authorized distributors, secondary or tertiary distributors, and on to dispensers. The guidance allows initially for both a paper-based and electronic pedigree format, with guidelines regarding the content of these records expected to be published prior to December 2014. That leaves precious little time to implement the requirements by the January 1 deadline and so it seems likely that either the guidance will come sooner than December, or that there will be some relief to the implementation timing.

Enhanced security will be derived from each entity in the supply chain relying on verification from its upstream business partner. Many of the loose ends associated with documenting flow of material and authorizing or licensing of the various entities along the supply chain are tied up, making the chain of custody more robust. As is done today, products that are deemed to be suspect can reported to the FDA and verified with the manufacturer.

Initially, manufacturers will be able to pass pedigree data in either a paper or electronic format. By November 2017, manufacturers must be in a position to provide an electronic Transaction Statement. This is the same timeframe in which manufacturers will be required to “affix or imprint a product identifier to each package and homogeneous case.” Identification will be in the form of a two-dimensional data matrix barcode that will contain lot, date, and a 20-digit (or smaller) number. Distributors and dispensers are prohibited from accepting product that does not have this identifier commencing November of 2019 and 2020, respectively. The new law does not call for an interoperable electronic system to coordinate product identification between trading partners until 2023.

Where Does It Take Us?
In the near term, companies should focus on processes and procedures required to generate a Transaction Document. Organizations should be familiar with some form of pedigree documentation already. Look to trade groups such as the Healthcare Distribution Management Association (HDMA at www.hdma.net) to provide a leadership function as to the standardization of its format and content.

Before initiating (or continuing) projects to serialize individual packages, it’s important to be aware that the FDA will go through an evaluation process, including input from a series of public meetings, commencing in 2014, which will be conducted not only to determine the requirements for serialization, but also to assess if such a system is justified. Among other things, these meetings will review “[w]hether electronic tracing requirements, including tracing of product at the package level, are feasible, cost effective, and needed to protect the public health.” Many companies have implementation projects for serialization already underway in anticipation of the now-preempted California legislation. Implementation across the pharmaceutical industry would likely have cost hundreds of millions of dollars. Also, conducting the work to put a unique 2-D bar code will require a revision to every U.S. market label — an enormous undertaking.

At the dispenser level, the capital cost to put systems in place as well as the ongoing incremental labor cost required for reading a unique serial number on every package at every pharmacy, hospital, doctor’s office, and clinic in the U.S. will be daunting. It should be expected that industry groups representing these stakeholders will continue to ask if the benefits gained outweigh the costs incurred.

For these reasons, companies would be well advised not to initiate serialization projects until the dust settles on not just the specifications, but whether a track and trace program will move forward at all.

This could put many manufacturers into the uncomfortable, but now familiar position, of having to hurry up and wait.

With serialized labels targeted for the end of 2017, and potentially a two-year implementation timeline, 2015 is looking to be a critical year for decision-making on whether full serialization is required.

Will It Be Enough?
So will these efforts, commencing January 2015, be sufficient to thwart would-be counterfeiters? The Pharmaceutical Security Institute (www.psi-inc.org), an organization whose members consist of pharmaceutical manufacturers, reported 217 counterfeiting incidents for 2012 in North America. PSI does not release detailed information on the incidents, and so this number may include both counterfeits — product made by someone other than the authorized manufacturer in a way meant to mimic the authentic product — and diverted product — product made by the authorized manufacturer but sold through a channel that the manufacturer or government authority has not sanctioned. Regardless, this is an extremely small number compared to the many millions of packages distributed in the U.S.

In one of the more well-publicized recent counterfeiting incidents, where fake Avastin was distributed to physicians in the midwest, the trade finish of the package was not the same as the U.S. product; in fact the brand name itself was different. Any buyer should have seen this as suspicious product. But the product was sold at a deep discount, a key motivator in these days when physicians’ margins are being tightened and the cost of many drugs runs extremely high.

This economic motivation will not go away, and in fact, with more expensive specialty drugs coming through the pipeline, it may increase. Whether it is malicious bad actors making fake drugs, or physicians trying to acquire lifesaving medicines at a price their patients can afford, there will continue to be sellers and willing buyers as there was in the Avastin case. Increased enforcement as well as additional rigor in the supply chain, brought on by the new legislation, should help reduce the frequency of these events and the risk to patients. However, it only takes a single, well-publicized incident to have a negative impact on a franchise.

Additionally, as the pharma supply chain becomes more global and more complex, the opportunity for counterfeiting will increase. Currently there are more than 2,200 manufacturing sites around the globe that can produce pharmaceutical products or devices for the U.S. market. These products then make their way through the distribution channel to more than 150,000 pharmacies, hospitals, clinics and other dispensing locations.

In most cases, the supply chain is straightforward: from the manufacturer, to a distributor, and then on to the dispenser. However, more complex routes can include repackaging, multiple distributors, and shipments between half a dozen or more locations before the product makes its way into the patient’s hands.

Manufacturers with products that are at high risk for counterfeiting — high-priced or scarce products which are relatively easy to copy — should consider taking actions above and beyond those required by the recent legislation. Indeed, in recognizing a need to further address this problem, the FDA issued a guidance for industry, “Incorporation of Physical — Chemical Identifiers into Solid Oral Dosage Form Drug Products for Anticounterfeiting.” There are also steps that can be taken, both covert and non-covert, for other dosage forms. Ideally, incorporation of anticounterfeiting measures should be part of the product development lifecycle. However, even for products that are on the market already, evaluating an authentication strategy should be considered.

The consolidation of pharmaceutical distribution and the emergence of the authorized distributor model during the past decade has helped make the U.S. pharmaceutical supply chain one of the safest in the world. The initial phase of the Drug Quality and Safety Act will only enhance this. However, the economic incentives as well as opportunities for counterfeiting will increase as more high-priced drugs come to market, and as the supply chain becomes more complex. The first year of implementation of the Act will be pivotal. Whether or not serialization and an interoperable information sharing system will move forward will likely be based on the experience of 2015 and how well the pedigree approach thwarts counterfeit activity. CP